A Cure for Fiscal Failure?

Should more countries create independent fiscal advisory councils to infuse some objectivity into national budget debates? Such councils are hardly a panacea, but for most countries, they would be a helpful step towards correcting a systematic bias towards deficit spending.

CAMBRIDGE – Should more countries create independent fiscal advisory councils to infuse greater objectivity into national budget debates? Jailed swindler Bernie Madoff recently summed up a lot of people’s feelings about fiscal policy, declaring that “the whole government is a Ponzi scheme.”

Perhaps this was just wishful thinking from a man who will die in prison after his own record-breaking $50 billion pyramid scheme collapsed in 2008. Personally, I suspect Madoff’s unenviable place in the record books will be secure for quite a while. Still, with many of the world’s largest governments facing a lethal combination of unsustainable conventional debt, unprecedented old-age pension obligations, and a downshift in growth, one has to wonder what the fiscal plan is.

In a new paper, “A Decade of Debt,” Carmen M. Reinhart and I show that general government debt in the United States, including federal, state, and local debt, has now surpassed the record 120% of GDP reached at the end of World War II.

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